The computation of new highs and lows uses daily high and low prices, so these are not necessarily *closing* five-day highs and lows.

What we see is that the new highs/lows tend to shift ahead of important short-term trend changes in the S&P 500 Index (SPY; blue line). Note, for example, how five-day lows dried up at the July bottom; how new highs have peaked in the current market and now are being overtaken by new lows.

Reversals, in which a plurality of new highs is replaced by a plurality of new lows and vice versa, are significant in terms of short-term trend shifts. I am currently watching closely the reversal pattern that appears to be under way at present.

In a longer-term market uptrend, spikes of new lows will occur at successively higher prices and make worthwhile points to consider for entry on swing trades, particularly when those new lows begin drying up. Similarly, in longer-term downtrends, spikes in new five-day highs will often make good entry points for short sales.

Breaking out the new highs/lows by sector also is quite helpful in identifying shifts in strength due to sector rotation.

I will be posting these data regularly as part of a continued expansion of decision support tools. Eventually, I will also post intraday new highs/lows, which are unusually helpful in identifying directional shifts/transitions that occur within the trading day..

About Me

Author of The Psychology of Trading (Wiley, 2003), Enhancing Trader Performance (Wiley, 2006), and The Daily Trading Coach (Wiley, 2009) with an interest in using historical patterns in markets to find a trading edge. I am also interested in performance enhancement among traders, drawing upon research from expert performers in various fields. I took a leave from blogging starting May, 2010 due to my role at a global macro hedge fund. Blogging resumed in February, 2014, along with regular posting to Twitter and StockTwits (@steenbab).